What Benefits Could Blockchain Bring to Traditional Financial Markets?

Blockchain technology, already used in gold trading, can make a difference in other global markets where real goods are traded. The introduction of this technology will not necessarily lead to a jump in commodity prices, but it will provide an opportunity to safely exchange commodities, open new channels of trade for buyers and sellers that were previously considered too risky, and make the entire commodity market more transparent and liquid, which in recent years has gradually was losing its appeal in the eyes of financial institutions.

The fact is that blockchain allows you to fundamentally differently keep records of financial transactions. This technology was developed to replace the old asset swap storage system, which was vulnerable. For many, the words blockchain and Bitcoin are synonyms. The course of Bitcoin over the past years has grown by an incredible 17 times. Bitcoin futures were launched on Cboe and CME Group in December 2017, and on December 18, the price of January contracts exceeded $20,000.

Bitcoin gained popularity, despite the fears of skeptics who compared the cryptocurrency boom with tulip mania in 1638. So far, however, it is not clear how best to use Bitcoins: as a means of payment or an investment asset. In addition, questions remain regarding the long-term prospects of this cryptocurrency, which has many competitors.

According to Coinmarketcap, there are over 1,530 cryptocurrencies in the world, their total capitalization is $272.7 billion. However, no matter what happens with the rates of various cryptocurrencies, the blockchain technology underlying them is likely to maintain its position and be able to impact financial markets significantly.

Blockchain is a technology that can help with the execution times in markets like Forex. As you know the foreign exchange market is a field where each second proves to be pivotal for a trader. A Virtual Private Server gives traders faster execution speed (even though this is in the milliseconds, the difference is still significant). A recent surge of traders installing MT4 on VPS suggests that more and more retail traders are starting to pay attention to execution speed when it used to be an institutional trader trend in the past.

Blockchain is already used in trading the most liquid commodity in the world – gold. You can turn your real gold into a digital asset stored in a digital wallet and transfer it to any other such wallet. Although the gold can be the subject of a wide variety of transactions (spot, futures and options, ETP, indices and the real product itself), blockchain can do something that is unattainable in any other way: bring together all market participants – gold miners, refiners, wholesalers, financial organizations, investors, traders, and retailers.

Before blockchain appeared, transactions were entered into the accounting record, and as a result, all information was stored in the form of tables or databases in computer systems. This was risky because this storage method was not always reliable. The data could be outdated or distorted, it could be destroyed. Digital distributed registries have solved this problem. Instead of storing data on servers or in databases, blocks are created that exists on computers and networks located in different parts of the world.

If someone wants to make changes to the chain of blocks, it will immediately appear on all these computers at once. This duplication of digitally distributed registries ensures the security of the entire system. The chain of transactions is forever fixed in the blockchain using cryptography, excluding any possible disputes about the sequence of operations. Each transaction that is confirmed and recorded on the blockchain has a high degree of transparency, and therefore it cannot be questioned.

There is no single centralized leadership, and each participant in the system is equal to another. The markets for real goods were not particularly chasing innovations and modern technologies. This is due to the fact that they are the least regulated compared to the rest. Commodities avoided the constantly tightening regulation that other markets are subject to because many of them are produced, stored, and loaded onto vehicles in countries and regions where such regulation is not possible.

Commodity traders know that typical metal shipping includes not only the road from the mine to the metallurgical plant or from the refiner to the buyer but also all the ships, trains, warehouses, and factories involved in this process. And even when the cargo is on a barge or a ship for a month or a year is gathering dust at a factory, it can change hands many times. The same goes for oil tanks or coffee bags.

Blockchain can help financial markets overcome the barriers that separate them from other markets. In addition, it guarantees timely settlements, simplifies raising capital, and confirms the right to property, which can be used as security. The fact that blockchain is already used in the gold market will make all the markets for real goods more transparent. This should be the beginning of the widespread use of distributed ledger technology, which will change the entire raw materials sector, including other precious and industrial metals, energy, grain, and other goods.

See Also: How Blockchain Technology is Disrupting The Healthcare Industry